Submitted by: Submitted to: Your Your Name: Swapnil Swapnil Agrawal Prof. Prof. Archana Archa na Patro PGP I, Roll no-152, no-152, Sec: B "ana#ement Accountin#
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Re$ection Pa%er 1 12-Se%-2&1'
Wilkerson Company Executive Summary: Rober t Par ker ,t he pr es i dent , Pegg y Kni ght , cont r ol l er and John Sco t t , manuf act ur i ng manage roft heWi Wi l ker son Comp mpany wer edi sc uss i ng oper at i ng r esul t soft hepr evi ousmont h.Thecomp mpet i t i vesi t uat i on vari esf orWi l kerson’ s acr ossi t spr oduct s.Pump and flow cont r ol l er sar eon t heopposi t esi desoft he i ndus t r y .Pumps ar ec om mm modi t y pr oduc t s,pr oduc ed i n hi gh v ol umes f or a marketwi t h sev er e pr i ce comp mpet i t i on.Fl ow cont r ol l er s,on t he cont r ary ,ar e cust om mi i zedpr oduct s,sol di n al esscom mp pet i t i vema marketwi t hi nel ast i cdem ma andat t hecur r entpri cer ange.Thet hi r d pr oduct ,val ves ,i sst andard,pr oduced and s hi ppe di nl ar g el o t s .Wi l ke r s o ni saq ual i t yl e ade r ,butt hi sl e ade r s hi pma ys o on bec ont es t edbysev er alcompe t i t or s.Al t hought he yar eabl et omat c hWi l ker s on’ s qual i t y ,t he r ear enos i g nsofpr i c ec ompe t i t i o ny e t .Ne v e r t he l e s s,i nt hel ong r un Wi Wi l ke r son s houl d be pr e par ed t o compe t e on pr i ce. Exi s t i ng ( pumps)and pot ent i al( val ves)pri ce comp mpet i t i on pushes Wi l kerson t o anal yze i t s over head c os t s ,s i nc enor e s e r v e so fc os tc ut t i ngar el e f ti ni t ss uppl yc hai n( bo t hc us t o me me r ands uppl i e r sag r e e dt oj us t i nt i mede l i v e r y ) . Taki ng i nt o account t he di ffer enc e among pr oduct and hi gh pr opor t i on of ov er heads,Wi l ker son shoul d abandon i t s exi s t i ng cos tsy s t em and mov et o act i vi t ybased cost i ng. The pr ofit abi l i t y anal ysi si ndi cat es t hat t he comp mpany ear ns heal t hy mar gi ns on pumps and v al v e s.Howe v e r ,t he mar gi n offlow cont r ol l er s atact ualusage ofcapaci t yi s negat i ve.Wi l ker son shoul d consi der act i on t ar get ed atcostr educt i on ( changesi n flow cont r ol l er sdesi gn ori nt hei r pr oduct i on and del i ver y pr ocess)or r ai si ng t he pr i ce offlow cont r ol l er sf or cust ome mer s.Si nceflow cont r ol l er sar ecust omi mi ze d,t hecomp mpanycan se tdi ffer ent pr i cesf ordi ffer entcust ome mer s( gr oupsofcust ome mer s)basedont heact ualamo mount o fr e s our c e ss pe nt( e . g .i mpl e me me ntac t i v i t y bas e dpr i c i ng ) . I s s ue :
Wi Wi l ke r son hast oes t i mat et hepr ofit abi l i t yofi t spr oduct si nor de rt omakel ongt er m pr oductmi xdeci si ons.Thes edec i si onsshoul d be based on es t i mat i on of
pr oductcost sand mi ghti ncl udedeci si onst o cont i nue/ st op pr oduct i on ofa part i cul ar pr oduct ,pr i ci ng deci si ons,and deci si ons concer ni ng pr oductand pr o c es sde s i g n,i nc l udi ngc us t o me rr e l at i o ns .
Pos s i b l eSol ut i on:
Act i vi t y base dcos t i ngal l owst r ac i ngi ndi r ectcos t st opr oductwi t hahi ghde gr ee ofaccur acy .Whi l evol umebased cost i ngi si ndi r ect l y based on an assumpt i on t hatt her e’ s a di r ectr el at i onshi p bet ween vol ume ofproduct i on ofi ndi vi dual pr oduct sand l evelofover head,act i vi t ybased cost i ngal l owsfindi ngi ndi vi dual r el at i onshi psbet weenvol umeofpr oduct i on anddi ffer entover heads.I tbecomes possi bl eduet o combi ni ngover headsi nt o costpool sand al l ocat i ng t hesecost pool st o pr oduct si n pr oport i on t o sel ect ed cos t dr i ve r st hat r eflect t hese i ndi v i dualr e l at i o ns hi psbe t we e nv o l umeo fpr o duc t i o n andl e v e lo fo v e r he ads . Wi l ke r son s houl d poolov er headsi nt o fiv egr oups( c os tpool s) :mac hi ner el at ed expenses , set up l abor cost , re cei vi ng and pr oduct i on cont r ol , engi neer i ng, packagi ngandshi pment .Thenextst epi schoosi ngmostappr opr i at ecostdr i ver s t hatr eflectt here l at i onshi pbet weenvol umeofpr oduct i on ofi ndi vi dualpr oduct s and l ev elofo ve r heads.Machi ne hour s ar et he mostnat ur alc ostdr i ve rf or machi ner el at ed expenses .Bot h se t up and r ece i vi ng,and pr oduct i on cont r ol act i vi t i esar echangedi n pr oport i on t onumberofpr oduct i on r uns.Engi neer i ng cos t can be al l ocat ed i n propor t i on t o hour s of e ngi nee r i ng wor k, wher eas packagi ngandshi pmentact i vi t yi sdr i ve nbyt henumberofshi pment s.
